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Why Freemium Doesn't Work
itwbennett writes "Tyler Nichols learned an obvious but important lesson with his freemium Letter from Santa site: 'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.' He also discovered that non-paying customers are more demanding than paying customers, which only stands to reason: If someone likes your service enough to pay for it, they probably have an affinity for your brand and will be kinder."
... seems to contradict his argument. The game is free to play but there are aspects of the game that are enhanced if you pay.
So 1 site gets it wrong, and the whole model is broken ?
I think not !!
Seriously.
I can think of examples where Freemium works (EVE, JIRA).
I am very small, utmostly microscopic.
"Results? Nichols found free customers are higher maintenance and more demanding than the paying customers. 20 or so paying customers asked questions while "hundreds" of free ones did. And when following up, paying customers never flagged his emails as spam, while many free customers did, and complained."
The numbers mean nothing if we don't know how many paid and how many didn't. I think 20 to "hundreds" is probably a good ratio for paid-to-free in the first place.
As for the spam, if you didn't ask for an email from a free service, and it appears to be advertising something (like his premium services), I think spam is a good label for it. I personally wouldn't flag it as such, but I understand those who would. Without seeing the exact email, it's hard to know why they might do it, though. And the paying customers... Were they annoyed by the email, too? Did they get the same email? How did he know which of the 2 flagged it spam or not? Merely the complaint emails?
In my experience, it's all fine and good to have free customers, so long as you keep them away from your paying customers and don't let it affect them negatively. Free customers really are more demanding. For some reason, they seem to feel you owe them something. It seems to be a bell curve with each end being more entitled, and the middle less so, approximately centering on the market value of the product.
"If you make people think they're thinking, they'll love you; But if you really make them think, they'll hate you." - DM
I will not engage in the this freemium model anymore either. Not only do the freeloaders ask for more support than do customers, they bad mouth your product more as well. I believe the process of transferring money from customer to merchant gives the customer a sense of "buy-in" in the product. The customers value it more because they are invested in it. Invested customers then feel MORE willing to invest time figuring out how to use it than do those who get it for free. It sounds counter-intuitive certainly, but I have lots of anecdotal evidence to support this in my career experience. The proof is in the pudding though. The higher I set the price of software in the app store, the happier my customers are with the product. Go figure!?!?
This article is absolute crap and comes off as more of a rant from an unsuccessful entrepreneur with a lame idea than a legitimate logical article with a point.
True some people really never intend on ever purchasing something, and brand influence can play a role, however they are a small subset and not necessarily the one that should be targeted. If you have a good idea that sells itself, and can actually make you realize that with the premium features you will get so much more then the majority of people will have a price they are willing to pay for it.
Other factors to consider are coffee table/water cooler talk. Is your wife going to bitch at you for spending money on premium service for a Letter to Santa site? Maybe. How about if you pay for a premium Dropbox site because she struggles trying to send large groups of photos or other documents to her friends? Probably not if the price was reasonable.
Further if the free service is too restricting or hard to use then potential clients may pass it up because risking ones time evaluating a product is acceptable to most people, but god forbid we pay $2 for a month of premium access to crap software. Then you have to worry about giving them your credit card information. Then you have to worry about their customer support giving you the run around when you call in 26 days and try to cancel the subscription from automatically renewing itself. To hell with all that. Even though its only $2, and we gladly pay more for a cup of coffee without thinking, we don't have to be stuck on the phone with Starbucks in a month trying to cancel future cups of coffee that we never really wanted.
Poor people are stingy and mean. In the Western society, divorced from any sensible unsociopathic ideology, that's the rule.
There is no intrinsic good quality in being poor. All the good qualities associated with people in financial struggle come with conjuction with their non-materialistic beliefs - mainly, religion, education, upbringing.
The job ALWAYS has to be paid. You can right a piece of software and put it out on sourceforge for free - that's personal entertainment. Support, bug fixing - ain't entertainment, it's hard work, and it should be paid.
That's how open software works - code is free, but support is not.
I do not believe in karma. "Funny"=-6. Do good and forbid evil. Yours, Oft-Offtopic Flamebaiting Troll.
While he makes some interesting points, I think he misunderstands the spam issue, and why his users, especially free users, rightly marked his mail as "spam":
If I look at spam I get, some of it is "random" spam. E.g., someone I never heard of trying to sell me viagra, or asking me to help smuggle $10,000,000 he stole while being the president of his country. But a growing percentage of the spam are people who confused a one-time business relationship with my desire to read all about them and their products for the next 20 years. E.g., I'm constantly getting mails from a particular hotel I once stayed at, mails from some company I once bought from, etc. People *hate* that, and it doesn't really help that they once used your services - they still hate the spam.
But why did free users complain more? That's easy: Every paying user remembered you and your service, and most of them "forgave" the one time "thank you mail" (but be warned, they won't so easily forgive repeated annoyances). From the free users, a lot of them probably don't even remember what service you provided them. Heck, it is possible that half of them never even fully used (e.g., didn't even complete a card) or didn't enjoy your service, and you don't know that. These people have no recollection who you are, and thought that even a "thank you" letter was an outright spam.
What should you do about the spam thing next time? Don't make the "I want to get mails" checkbox hidden in some long form and default to on. You have two options - either make it default to "off" (so only people who REALLY want to get your mails will get them, but be warned that few people will actually want that), or, if you want it to default to "on" make a very very clear screen which basically says "I'm giving you this service for free, in exchange for the right to mail you in the future. If you do not agree, or would consider such mails to be spam, please do not use this service.".
Zynga's revenue for 2011 was roughly 1 billion:
http://blogs.wsj.com/venturecapital/2011/12/15/so-whats-zynga-going-to-do-with-all-its-cash/
EA's revenue for 2010 was roughly 3.65 billion, with roughly 800 million in 'digital revenues':
http://en.wikipedia.org/wiki/Electronic_Arts
So Zynga took in less than 1/3 what EA did this past year, still impressive, but quite far from beating EA so far.
In addition, revenue does not equal profit. What would be interesting was the net profit, how it was calculated, and the margins.
I'm a consultant - I convert gibberish into cash-flow.